H&M Q2 Sales “Flattish” as Supply Chain and Shipping Costs Bite – WWD

PARIS – As supply chain and inflation costs hit, Swedish high street retailer H&M posted slightly weaker than expected sales in the three months to May 31, citing “flattish” net sales in local currencies.

Net sales looked a little stronger in Swedish kronor, showing a 6 percent increase to 57.6 billion, or $5.36 billion at current exchange. The Swedish currency fell to its weakest level ever against the dollar and the euro during the quarter.

With the U.S. dollar up around 2 percent in the period, the company cited the currency’s unexpected bounce back, as well as costs of supplies and shipping, as factors denting its recovery, despite having a hit collection with the Mugler collaboration that was released May 11.

“High raw materials and freight costs and a strong U.S. dollar had a negative impact on the result compared with the previous year,” the company said in a statement.

Sales for portfolio brands – meaning outside of its core H&M stores – were up 12 percent in local currencies, and 17 percent in Swedish kronor. The company operates Arket, Cos, Monki, &Other Stories and Weekday in addition to its flagship brand.

H&M has been concentrating on its more upmarket brands, including Cos, which it is positioning to reach fashion clients as demonstrated in a fashion show in Paris, and Arket, which focuses on sustainable materials and a highly curated collection.

H&M had previewed these numbers in a trading note on June 15, blaming the soft sales in the second quarter on the weather. It said summer is off to a strong start, with sales up 10 percent in local currencies in the period of June 1 to 27.

“The summer collections have been well received and the third quarter has got off to a good start. The conditions for increased growth as well as profitability continue to develop in a favorable direction,” said chief executive officer Helena Helmersson.

“We increased sales in many markets despite reduced purchasing power and unfavorable weather conditions compared with last year,” she added.

Helmersson said the company is tempering costs as inflation cools. “The external factors that affect our purchasing costs continue to improve,” she said.

The numbers were “slightly below” analysts’ expectations, but showed promise on cost control and better supply side pricing, said RBC Europe Limited analyst Richard Chamberlain. The positive June performance also indicated a general recovery of the apparel retail sector, said Chamberlain.

H&M shares were up 10.42 percent in morning trading.

The company, which implemented a cost reduction plan – closing selected stores and reducing headcount by about 1,500 jobs – decreased marketing and administrative costs by 2 percent in local currencies, though they were up in Swedish kronor to 25.58 million, or $2.3 million at current exchange.

The cost-cutting plan “is proceeding at full speed, and much of the work that we have done in recent years is starting to bear fruit,” Helmersson reported.

H&M is also concentrating on improving its omnichannel customer service, which will help it compete with other fast fashion high street retailers, such as Mango and Inditex’s Zara, both of which have emphasized online and offline integration in recent periods.

Gross profit in the second quarter rose to 30.38 million Swedish kronor, or $2.81 million, corresponding to a gross margin of 52.7 percent, while operating profit totaled 4.74 million Swedish kronor, or $438,568 at current exchange.

The company is launching a stock buyback program to purchase $277.68 million worth of its own shares within the next year.

In the first half, group net sales were up just 1 percent in local currencies, and 9 percent in Swedish kronor to 112.48 million, or $10.44 million at current exchange.

The period was impacted by “high raw materials and freight costs, a strong U.S. dollar, increased energy costs and the effects of winding down the operations in Russia.” The company pulled out of the territory, where it operated about 170 stores, when the country invaded Ukraine, and began wrapping up its operations there last summer.

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